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Centralised Treasury Explained

In turbulent times, it is more difficult to achieve higher risk mitigation, control, and visibility over cash. This has been a driver for centralisation in recent years and, as CFOs and treasurers seek to gain an accurate view of the cash held by their organisations, we have seen the topic of centralised treasury picking up interest.

In this blog post, we’ll dive into what centralised treasury entails, explore its benefits, shed light on the importance of centralised foreign exchange (FX), and discuss why businesses need centralised FX along with its implementation.

Understanding the main goal of Treasury

The primary objective of treasury management is to plan, organise, and control cash to meet the future financial goals of the organisation. Treasurers manage risk by applying risk transfer and hedging techniques that comply with the company’s internal policies – in many cases supported by a treasury management system (TMS) and other tools, such as spreadsheets and other treasury technology.

The popularity of in-house banks has been on the rise during the last decade. Pioneering treasurers have been using an in-house bank for years to centralise payments, collections, and loans as well as optimise liquidity and risk management. 

As the in-house bank is a proven concept that can be adopted at the own pace of an organisation, group treasurers are starting to show increasing interest in in-house bank software solutions.  

What is Centralised Treasury?

Centralised treasury is a financial management approach where a company consolidates its treasury functions into a single, strategic hub. This central hub manages various financial aspects, including cash management, risk management, and liquidity, bringing together disparate treasury activities under one umbrella.

A centralised Treasury model offers the advantage of consolidated control, standardised processes, and enhanced efficiency across borders. 

 

Benefits of Treasury Centralisation

1. Ease of Use

Centralising treasury functions simplifies daily operations. Companies reduce redundancies and streamline their financial workflows by consolidating tasks like cash management and payment processing. This simplicity translates to improved efficiency and reduced operational costs.

2. Centralised Control

With treasury activities housed in a centralised system, businesses gain better control over their financial operations. This centralised control ensures adherence to policies and enhances risk management by enforcing standardized processes across the organization.

3. Better Forecasting

Accurate forecasting is crucial for effective financial planning. Centralised treasury provides a consolidated view of financial data, facilitating more accurate predictions of cash flows, liquidity needs, and potential risks. This foresight empowers businesses to make informed decisions and adapt proactively to market changes.

4. Full Visibility of Exposure

Centralised treasury offers a comprehensive view of a company’s financial exposure. This visibility allows businesses to identify and mitigate risks associated with currency fluctuations, interest rates, and other market variables. A clear understanding of exposure positions a company to make strategic decisions that protect its financial health.

Why Do You Need Centralised FX?

When organisations are looking for a way to improve cash flow processes, cash visibility, and reduce bank fees, the in-house bank can be a great alternative compared to their subsidiaries working with countless banks internationally. Let’s understand why:

1. Mitigating Risks

Centralising foreign exchange (FX) activities is paramount for risk mitigation. Fluctuations in currency values can significantly impact a company’s financial health. By centralising FX operations, businesses can implement hedging strategies more effectively, shielding themselves from currency risk.

2. Efficiency in Execution

A centralised FX approach streamlines the execution of currency transactions. Through a unified platform, companies can achieve better rates, reduce transaction costs, and improve overall efficiency in managing international payments and receipts.

3. Enhanced Decision-Making

Centralised FX provides decision-makers with real-time insights into currency positions and market trends. This enables proactive decision-making, allowing businesses to shield themselves from unexpected adverse economic events and minimise the impact of unfavourable forward points.

Implementing Centralised FX

With the understanding of why centralised FX is essential, the next step is implementing it seamlessly into your financial strategy. Here are key considerations:

  • Assessment and Planning: Conduct a thorough assessment of your current FX processes and develop a comprehensive plan for centralisation. Identify key stakeholders and establish clear objectives.
  • Technology Integration: Invest in robust technology solutions that can support centralised FX operations. This may include integrated treasury management systems and other tools, like Kantox In-House FX, that provide real-time visibility and control.
  • Training and Communication: Ensure your team is well-trained in the new centralised FX processes. Effective communication is crucial to address any concerns and ensure a smooth transition.
  • Monitoring and Optimization: Regularly monitor the performance of your centralised FX system and make necessary adjustments. Continuously optimize processes to adapt to changing market conditions and business requirements.

In Conclusion

Large multinational companies that move towards centralisation of decision-making will reduce the risk in the system because it pools resources and allows for the coordination of actions. When it comes to foreign exchange, centralisation can become a strategic move to optimise visibility, efficiency, and control. 

Incorporating centralised treasury practices, including centralised FX, can offer a robust shield against currency risks and, thanks to automation technology, foster efficiency in Treasury operations. If you want to see the benefits of Treasury centralisation for your business, take a look at Kantox In-House FX and request a demo to understand how Kantox can help you.

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